Lessons from the fall of Dell and IBM

Because of leadership, Dell was an unstoppable force in the PC industry from 1997 through 2004 and consistently gained market share from competitors, even during industry slumps. IBM Corp. dominated its marketplace until the person in charge forgot the core concept that made the company great.

For Dell, it took the return of its founder, Michael Dell, to stop the downward spiral. For IBM, the board had to bring in Lou Gerstner to replace the existing leadership in order to get “Big Blue,” a company that started in the 19th century, back on track.

These two people knew how to grow again by finding out what their customers wanted and how to eliminate the guesswork. This caused fewer mistakes, complaints and returns. In Michael Dell’s words, “From the start, our entire business, from design to manufacturing and sales … was oriented around listening to the customer, responding to the customer and delivering what the customer wanted.”

Before Dell, computer companies worked through distributors and sent products to them. The idea was that the customer would find a product “close enough.” With 800 numbers and the Internet, Dell asked the customer exactly what they wanted and then produced and shipped it. Their strategy bypassed distributors and cut cost based on mass customization. By carefully listening to and responding to what their customers were saying, during the “technology bust” of 2001, Dell cut prices and gained the No. 1 share worldwide in PCs.

But in 2004, Michael Dell passed the reins to Kevin Rollins, who focused on revenue and forgot about the consumer. Complaints mounted as Rollins shifted support technicians overseas to further boost revenue and reduce cost. Michael Dell then retook the helm and refocused on the basics which had made the business great.

Dell was successful because it knew that direct customer contact was the best way to gain information and build relationships and that regular interactive communications with customers can detect new trends in expectations and demand. Under the leadership of Rollins, Dell lost its focus as had Big Blue just a decade earlier.

When Gerstner replaced John Akers as IBM’s CEO in 1993, he found IBM’s focus had shifted from customers to a series of smaller internal competitions designed to increase efficiency and reduce cost. At the same time customer tastes were shifting from big mainframes toward networks of smaller, ever more powerful desktops.

Akers ignored the shift, believing IBM didn’t have to worry about customers’ changing desires because they had such a long history of customers always coming to them for answers to their problems. He focused on protecting its basic business and ignored new competitors who were pirating their customers in droves.

Gerstner didn’t assume he knew how to fix IBM but traveled tens of thousands of air miles asking customers where the company had gone wrong. IBM’s current problems came from its past success. Having done so well for so long, it was suffocating in arrogance and had become a company fixated on selling products rather than providing superior solutions for customer problems.

Change demands that leaders and organizations make a commitment to talk frequently with customers to learn more about their needs and use the conversations, not to pitch their products or services, but to understand customers’ preferences. Although it’s extremely important to reduce cost and increase efficiency, doing so must never jeopardize serving customers whose preferences are constantly changing.

Questions for discussion:

• What are the new problems and preferences of our customers?

• How can we have more frequent conversations about their needs and how to fill them?

Joe Murtagh is The DreamSpeaker, an international keynote speaker, meeting facilitator and business trainer. Contact Joe@TheDreamSpeaker.com, TheDreamSpeaker.com or call (800) 239-0058.